Some federal lawmakers are sparking a movement to reduce government constraints on the ability of credit unions to offer member business loans.
Larger commercial banks remain reluctant to extend smaller loans, and credit unions have stepped in to fill the need. But they say they’re hamstrung by regulations.
To improve the capacity of credit unions to extend loans, Reps. Paul Kanjorski (D-PA and Ed Royce (R-CA) propose permitting them to make member business loans (MBLs) totaling up to 25 percent of their assets, an increase from the current cap of 12.25 percent.
A similar measure has been introduced in the Senate by Sen. Mark Udall (D-CO) and is receiving bipartisan support like the House version.
Small, But Lending
Richard Gose, senior vice president of political affairs at the Credit Union National Association (CUNA), notes credit unions constitute “less than 2 percent of the [nation’s] total lending business portfolio, so even if we doubled our share, it remains a minimal portion of total loans.”
In 2009, 14 credit unions in the United States failed, compared with 140 banks. Conversely, in the last year loans provided by credit unions rose by 11 percent, while commercial bank lending decreased 15 percent.
U.S. credit unions have been making member business loans (MBL) since their inception in the early 1900s. Statutory limits were not placed on loans until passage of the Credit Union Membership Access Act of 1998 (CUMAA).
The limits effectively capped the dollar amount of total MBL lending to 12.25 percent of credit union total assets. Proponents of raising the limits argue credit unions are being unfairly penalized because commercial banks are not limited in a similar manner.
More Tightly Regulated
According to a recent U.S. Treasury Department study, credit union business lending is more regulated than other financial institutions’ lending despite having delinquencies and charge-offs “much lower” than that for either banks or savings institutions.
Supporters believe the disadvantage forces credit union members to seek higher-cost loans at other financial institutions and increasingly prevents the formation and growth of small businesses.
In addition to considering lifting the caps, Congress is examining increasing the minimum dollar amount for counting a loan toward the MBL ceiling from the current $50,000 to $250,000 and exempting from the ceiling member business loans made to qualifying underserved areas.
Today, only one in five of the nation’s 8,800 credit unions is engaged in member business lending, of which the average loan is less than $200,000.
Opposed by Banks
Past efforts have been hindered by opposition from community and commercial banks.
Independent Community Bankers of America Senior Vice President Stephen J. Verdier wrote to senators to voice his opposition to raising the limits. He maintained it would lead to a “siphoning” of business from commercial banks and “would threaten their ability to continue to serve their communities.”
Jennifer G. Hickey ([email protected]) writes from Washington, DC.